This Easter, as you idly stroll the marble halls of some duty-free emporium while waiting for your holiday flight, pondering your last chance to choose between a bottle of that strange-coloured local liqueur or Old MacSporran’s oak-cask-matured 25-year-old malt whisky, pause just a moment for quiet reflection. Even if it means you will no longer be able to weigh yourself down with a bottle of something you would never otherwise have thought of buying, you may still be able to derive limited satisfaction from the abolition of duty-free sales, for it reflects an increasingly rare victory for the European Union over the power of corporate lobbying.
That it has come about with no thanks to our government, which backed the corporate case, should produce a sobriety that not even MacSporran could dispel.
Duty-free – that long-established wheeze by which airports and ferry operators, airlines and terminal owners tempt passengers into buying at least partially tax-free goods such as drink, cigarettes and electrical goods supposedly cheaper than they can buy them in local shops – will end on 30 June this year for travel in the European Union. (It will remain for transcontinental travellers.)
It was a deal done and dusted eight years ago by the governments of the EU. To have reopened the issue would have required not just majority consent but unanimity from all 15 member states. Now there is no chance of that happening, though the duty-free lobby was still clinging to that hope this week.
Far from being a time-hallowed perk of sailors and air crew, duty-free is a commercial lure to part passengers from their money. It dates all the way back to 1947 when Shannon airport, desperate to win a piece of the transatlantic trade, introduced cheap sales. It has become big business. It is now worth £12 billion a year worldwide, nearly £5 billion of that in Europe, £1 billion in Britain alone. Those figures have doubled since the EU decided to phase out duty-free in 1991. The industry itself estimates that 140,000 people depend on such sales for their jobs and that over 80 per cent of all duty-free goods sold across the world are made in Europe.
The arguments for getting rid of duty-free are largely practical. The practice currently amounts to a subsidy of about £1.4 billion a year to duty-free companies; that is the amount they do not have to pay in excise and tax on their sales. The European Commission wanted to end it because it is an anomaly in the EU’s supposedly single market, which is meant to preclude unfair competitive advantages between member states and companies. It is also a form of commerce that benefits only those who travel and disadvantages those who do not, who have to pay higher prices for the same products in their local shops because of it. The more you travel abroad, the more you’re subsidised: business travellers most of all. Furthermore, it does not benefit all travellers equally – you can buy duty-free if you catch a plane to Paris but not if you go by bus or train.
As travellers know, not all duty-free sales are the bargains they seem and, because tax rates and discounts vary, that cheap bottle of ouzo you bought while waiting for the ferry may actually be cheaper in the shops when you get to your destination. And, if you want to be really po-faced about it, duty-free encourages people to buy more alcohol and cigarettes than is good for them, or at least than they otherwise would.
The European Union originally wanted to end duty-free in 1993, but it was postponed until 1999 to give the industry a chance to adjust gradually. Instead it has used the past eight years to build ever larger duty-free shops and shopping malls in the airports and terminals of Europe, to expand sales – and to lobby remorselessly and expensively to stave off the change. This week it was complaining about a “sudden” decision.
It has been a powerful campaign, costing millions (why stint when there is so much potential gain?), spearheaded by the owners and assisted by trade unions representing workers in the travel industry. In Brussels the lobbying has been masterminded on behalf of the International Duty Free Confederation by John Hume, son of the saintly Northern Ireland peace campaigner.
The industry has a case in saying that, as the European single market is still far from completion and there is no agreement on what duty should be levied on goods bought in transit, abolition is likely to leave an unsatisfactory vacuum. As you travel from Britain to France you will pay British rates of VAT; in the opposite direction, French rates. In mid-Channel, excise rates will change, which means you had better make your purchases on the French side of the line. If you sense a Commission ambition to harmonise excise duties and VAT you would not be mistaken.
More tendentious has been the argument that the end of duty-free means fares will rise and airports will lose investment. It beggars the question why these companies have been investing in their airport shopping malls these past few years. Are they really expecting to have to close them down? Or will they find another way of enticing passengers in?
The industry has naturally based its arguments largely on the effect the end of duty-free will have on employment rather than profits. It has claimed that more than a third of jobs may have to go, that half the airports of Europe will have to close and that ferry services will be decimated. It has been sad to see disconsolate ferry seamen and air cabin crews bussed to Brussels to complain that they are likely to be thrown out of work, with the connivance of the very employers who are about to sack them. As the driving rain drips remorselessly off their placards, they look like troops being prodded over the top by staff safe in their nice dry billets behind the lines at corporate headquarters. The Commission’s study this week found claims of job losses were much exaggerated.
This time last year there wasn’t a prayer for a postponement of the end of duty-free, no chance of the unanimity among the 15 member states required to reprieve it. When Ireland’s finance minister Charlie McCreevy fought for the issue to be re-opened last May, he looked to be on his own. Britain’s Gordon Brown dismissed the suggestion brusquely as something that had been already decided.
Slowly, however, duty-free seeped back onto the agenda. It started with Gerhard Schroder’s election campaign in Germany where, to garner votes along the Baltic coast, he came out in favour of a review of the effect of the ban – there is a profitable trade in Baltic shopping cruises. Then the French premier Lionel Jospin commissioned an MP, fortuitously from Calais, to conduct a survey on likely job losses.
With France and Germany on board for a review, the British government also jumped ship. In December, at a meeting in Brussels, Brown suddenly discovered that he had always been in favour of a review, too. So unexpected was his discovery that, the evening before, officials in Whitehall had been briefing journalists that the government saw no reason to reopen a long-decided issue. Now suddenly the original decision was all the fault of previous Tory ministers. Brown even had the nerve to chide journalists for getting the government’s position wrong.
The source of this Damascene miracle was not hard to find. It was the week the Sun dubbed Oskar Lafontaine, the German finance minister, the most dangerous man in Europe for his ideas on tax harmonisation. The tabloids were also beginning to make menacing noises about the loss of “our” duty-free. A couple of weeks later at the EU summit in Vienna, Tony Blair, who might otherwise have been under the newspapers’ cosh over Britain’s budgetary rebate or the tax harmonisation wrangle, was suddenly also claiming to be battling for duty-free. Heads of government spent an hour discussing the issue instead of the anticipated two minutes. Other member states reluctantly agreed to ask an even more reluctant European Commission to carry out a review of job losses. Blair told the Commission president, Jacques Santer, that he wanted a significant postponement because abolition would lead to “higher fares and much popular unhappiness”. Note the emphasis.
Duty-free now looks likely to be abolished this June, but there has been an almighty behind-the-scenes row in the Commission over whether a delay might not after all be expedient. Last week I caught up with a very senior bureaucrat in a Brussels restaurant. He mused: “With all our other problems is this something we really want to go to the wall over? People want it, don’t they?”
This week, the duty-free lobby was complaining, of all things, about a lack of democracy in the decision. For once, a limit to the power of corporate lobbying, more like.
Stephen Bates is European affairs editor of the “Guardian”
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